Budget File 2013-14 Final

7/30/2019 Budget File 2013-14 Final

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2013-14

Pakistan

BUDGETChemistry


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Particulars Page No.

Note:

The Comments included in this commentary are of general nature and represent ourinterpretation and do not constitute to be the part of the legislation. We recommend thatthe reference should be made to the specific wording of the Finance Bill and the statutesliterature. It is in the better interest of the reader to take appropriate professional opinionbefore making a conclusion.

This publication is being issued exclusively for the information of clients only.

Index

Overview

Highlights

Budget at Glance

Pakistans Economy at Glance

Income Tax Ordinance, 2001

Sales Tax Act, 1990

Federal Excise Duty, 2005

Income Support Levy Act, 2013

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OVERVIEW

The Federal Budget 2013-14 is on hand. After a prolonged time gap and borrowed Finance Ministers,this budget is presented by the experienced and professional Finance Minister, who also bags theunique honor of presenting fifth budget before an elected assembly. Though Mr. Ishaq Dar has to takethe ownership of the budget, but factually, he might have not been able to see through the Nitti-gritty ofthe budget, being presented in less than fortnight of his taking oath. Therefore, much changes and

adjustments are likely to come up during the budget debate, and even after the approval of budget,during the period following.

Looking at thelegacy inherited by the new political dispensation of theMay2013 elections, not restrictedonly to higher physical deficit, low tax to GDP ratio, dependence on borrowing for development as wellas current expenditure, mounting internal and external debt, depleted foreign exchange reserves, highinflation, energy crises and resultant monster of circular debt, hemorrhage by public sector entities dueto low performing public sector, complete failure and collapse of public service and utility institutions likePIA, Pakistan Railways, Electricity and Gas utilities etc. To cut short all the major economic indicatorsare negative. In the backdrop of all negative indicators, bringing out a positive budget was a Herculeantask.

The next question arises is, could the budget be termed as positive or negative. If we look at the budgetin its entirety, it looks positive from the base it has to carry forward the economy, and it has already sentpositive signals to business and industry. But if one goes through the chemistry and segments of thebudget, many negativities and distortions emerge, and many steps atedivergent, rather than supportiveto each other. For example, reduction in inflation has been claimed, but increase in GST by apparent1%, which shall have multiplier effect with the stages of GST charge on a particular product, increase inelectricity tariff are likely to counter the efforts to reduce the inflation rate. In particular increase in rate ofsales tax, shall result in reduction of net disposable income of the marginalized and low income grouppopulation, resultingin vulnerability to foodinsecurity of already vulnerable poor.

Many new withholding tax venues have been opened by bringing many items, sectors and payees towithholding tax regime. Though these withholding tax initiatives are always disguised in broadening oftax base robe, but they always result in a revenue generation tool. Increase in withholding tax rate onexisting goods and services is totally not justified, as it gives further rise to dependence on thepresumptive tax regime, whichis not an ideal tax measure by all means.

On the broadening of tax base side, a dismal target of 10,000 new taxpayers has been fixed, which isdisappointing by all standards. It also falsifies the tall claims of having data of millions of affluent peopleavailable with FBR, who were living lavishly but paying no taxes. This establishes that the claims by thetop bosses at FBR during last four years to get hand on these identified 3.5 million tax evaders was amere rhetoric, aimed at having their own positions secured, as well as to promote the notorious tax

amnesty initiatives, on the garb of bringingthese people to tax net.

The budget has once again followed the suit of taxing of the taxed, by increasing the tax rates ofsalaried and business individuals and the Association of Persons. This is tantamount to squeeze thealready tax compliant population of the country. The increase of maximum tax rates from 20 % to 30% inthe case of salaried individuals and from 25 to 35% in the case of business individuals, and flat rateapplicable on AOPs increased from 25 % to 35 is harsh and discriminatory. This also is tacit admissionby the finance and tax managers of the country that they have totally failed in roping in the noncompliantrich and affluent to the tax net.

www.frants.pk Budget Chemistry 2013


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2

OVERVIEW


The tax rate of corporate sector has been promised to be brought down to 30 % from present 35% in the next

five years. We have seen such promises in past and even the legislated and built in reductions in such tax

rate had been subsequently reversed. One of the merits behind increase in the tax rates of businessindividuals andAssociation of Persons and decrease in Corporate Tax Rate has been incentive of increased

corporatization, which is supposed to be relatively better organized, documented and complying sector. This

has been advocated and propagated by the peoples at the helm of the affairs at the regulatory bodyresponsible for regulation the corporate sector. However, unfortunately, facts and figures of existing

corporate sector do not support these assertions. Out of total 63,000 companies registered under the

Companies Ordinance, 1984, only 25 percent are filing their tax returns Non compliance of other statutory

obligations (such as tax withholding agent) remains besides. Out of 650 companies listed at Karachi StockExchange only 300 scrips are active, out of which only one-third are declaring profit and paying dividends

regularly. This speaks of the ground realities, and not but regulation, enforcement and

compliance is the panacea to these ills.

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corporatization

Regulation, compliance and enforcement, both at FBR and other regulators depends firstly on thepolitical will, and thereafter, capacity and competence of the enforcer or regulator. Unfortunately, all

these factors arefound missing in our taxation system.

To sum up, the budget 2013 has placed great reliance on kick starting the economy, which seems to bequite difficult as the taxation measures proposed in the budget are, apparently looking in the otherdirection. The biggest challenge is the energy crises, without which no significant vibration is likely in theeconomy. However, with these harsh tax measures, thenew Government in way hasmade up a make orbreak situation for itself. If the Government could control the energy situation, the harsh tax measuremay bring fruit in the following years. Failure in controlling energy crises, coupled with the proposedrevenue generation measures may further strangulate and slow down the already ailing economy, andlead it to virtual collapse. However, relying on the experience and expertise of the present economicmanger, and the team to be chosen by him to implement his strategy, it would not be totally out of context

to believe that he wouldachieve histargets, both in economic and social terms.

We wish and pray success to the Finance Minister and his team in their endeavor to bring the derailedeconomic situation back on rails (Amin)


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3Highlights


Withholding Tax deducted on dividend received by the Companies is proposed to besubjected to final tax regime.It is clarified that Salary income is not available for setting off of losses under any other head ofincome.Non-profit organization and an entity or a body of persons established or constituted by or underany enacted lawis proposedto be included in thedefinition of Company.

Agricultural income will not be considered as non-taxable source in Income Tax Return ifagriculture taxis not paid on the incomeunder the relevantprovincial law.The rate of minimum turnover tax has been proposed to be re set from 0.5% to 1%.

AOPs and individualsare allowed to carry forward minimum tax exceeding normal taxation.All retailers are now proposedto be subjectedto normal taxationirrespectiveof their turnover.Builders will pay minimum tax on the basis of total number of square feet sold or booked for saleduring the year at the rate of Rs. 25 per square foot as per the construction or site plan approvedby the relevantregulatory authority.Land developers will pay minimum tax on the basis of total number of square yards sold or

bookedfor sale during the year at the rate of Rs. 50 per square yard as per the lay out or site planapproved by the relevant regulatory authority.The limit of annual electricity bill for commercial and industrial electricity consumers has beenproposed to be reduced from Rupees one million to Rupees five hundred thousand for filing ofmandatory Income Tax Returns.It becomes obligatory for persons registered with anyChamber of Commerce & Industry, trade orbusiness association, market committee or any professional body to file Annual Income TaxReturns.For revision of Annual Income Tax Return, it is proposed to first get approval from thecommissioner in writing.

filed by employers is no longer to be

treated as Income Tax Return for salaried taxpayers. Every salaried taxpayer is required to fileAnnual Income Tax Return at his own.It becomes mandatory for individuals filing income tax return or statement of final taxation to filewealth statement as well as wealth reconciliation statement irrespective of their annual declaredor assessedincome.Legal powers conferred upon the Federal Board of Revenue under section 120A to introduceinvestment tax schemes regarding undisclosed income have been sought to be withdrawn.Withholding tax on salaries to be calculated and deducted by the employer without consideringany admissible tax credit.Persons registered under the Sales Tax Act, 1990 are proposed to become withholding agentsunder sections 152 regarding payments to non residents and 153 regarding payment for sale ofgoods, rendering of services or execution of contracts.

The bill seeks to omit section 153A introduced by the Finance Act, 2012 whereby manufacturerswere required to collect advance tax at the rate of 1% at the time of sale to distributors, dealersand wholesalers.However manufacturers, commercial importers, distributors, dealers andwholesalers of certain goods will collect advance tax under newly introduced sections 236 G and236HIndividuals orAssociations of Persons (AoPs) paying gross rent of Rs. 1.5 million and above in ayear, charitable institutions, private educational institutions, boutiques, beauty parlours,hospitals, clinics, maternity homes are proposed to become withholding agent under section 155of the Ordinance to deduct tax on account of payment for rent.

Annual Statement of Deduction of Income Tax from Salary

Income Tax


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4Highlights


The Federal Board of Revenue is sought to be fully empowered to ask the Banks tofurnish certain information relating to their account holders. Hence, banks are not immune todisclose the information to tax authorities.It has been clarified that powers of the FBR under section 214C of the Ordinance to select

cases for audit of income tax affairs do not restrict the Commissioner to require the taxpayerto furnish records and documents for the purpose of audit of its income tax affairs undersection 177 of the Ordinance.The FBR may allow the individuals to use Computerized National Identity Card Number asNationalTax Number.The amount of penalties for non-filing of returns/ statements and non compliance of auditproceedings has been proposed to be increased. The penalty of Rs.5,000 will be imposedfor non display of the NTN certificate at businessplace.The Board is proposed to be empowered to keep the parameters confidential on the basis ofwhich the case of the taxpayer is selected for audit of income tax affairs through computerballot under section 214C of theOrdinance.

The owners, lease-holders or operators of marriage halls, marquees, hotels, restaurants,commercial lawns, clubs, community places, etc. are proposed to collect adjustable advancetax @ 10% on total amount of bill from persons arranging or holding functions.

Adjustable advance tax will be collected by the persons censoring or certifying foreign-produced films,TV drama serials or plays.Pakistan Electronic Media Regulatory Authority is proposed to collect adjustable advance taxat the time of issuance or renewal of license to cableoperatorsandother electronic media.Educational institutions are proposed to collect adjustable advance tax @ 5% of the amountof fee at the time of receipt of fee where annual fee exceeds Rs. 200,000.Market committees are proposed to collect adjustable advance tax at the time of issuance orrenewal of license to dealers, commission agents or arhatis.Existing six slabs of taxation on income of salaried individuals are proposed to be increased

to twelve slabs. The proposed amendment seeks to charge tax at higher rate on individualshaving higher salaries.Existing five slabs of taxation on income of business individuals and Association of Persons(AOPs) are proposed to be increased to seven slabs. The proposed amendment seeks tocharge taxat higher rate on income of persons earning higher level of income.In case of individuals, AOPs and companies, existing slabstaxation on property income areproposed to be increased upto seven slabs resulting in increase in taxrates on propertyIncome.Corporate Income Tax rate applicable to companies other than banks has been proposed toreduce to 34% for tax year 2014.The standard rate of advance tax to be collected by the collector of customs at the import

stage is proposed to be increased to 5.5% for persons other than industrial undertakings andcompanies.Withholding tax at the rate of 4%, 7% and 6.5% is proposed to be deducted on account ofpayment to taxpayers other than companies for sale of goods, rendering of services andexecutions of contractsrespectively.In case of lump sum payment of motor vehicle tax, new rates of collection of income tax havebeen proposed to be added.The period of Income Tax Holiday available to Special Economic Zones is proposed to beextended to 10 years

Income Tax


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5Highlights


Rate of income tax deducted on cash withdrawals is proposed to be increased from 0.2% to0.3%.Withholding tax @ 10% on income earned by margin financers, trading financers or lenders

is proposedto be collectedthrough National Clearing CompanyPakistan Limited.Rate of initial allowance for plant and machinery is proposed to be reduced from 50% to25%.Import of hybrid cars has been made subject to reduced rate of income tax at the importstage.Existing tax credit equal to 75% of tax payable on salary income of full time teacher andresearchers has been proposedto be withdrawn.Exemption on income of university or other educational institution established solely foreducational purposesand notfor purposesof profit has been proposed to be withdrawn.

Sales taxrate is increased from 16%to 17%. W.E.F. 13th June 2013Further sales tax @ 2% is applicable on supplies to unregistered persons.Following items are brought in Third Schedule i.e. sales tax on these items will be chargeable onthe basis of final retail price. W.E.F. 13th June 2013

Sale price and Sales Tax are required to be printed, labeled, embossed or mentioned on allthese items

Sales Tax

1. Finished or made-up articles of textile and leather, including garments,footwear, and bed ware, sold in retail packing.

2. Household electrical goods, including air conditioners,refrigerators, deep freezers, televisions, recorders and players,electric bulbs, tube-lights, fans, electric irons, washing machinesand telephone sets.

3. Household gas appliances, including cooking range, ovens, geysers and gasheaters.4. Foam or spring mattresses, and other foam products for household use.5. Auto parts and accessories sold in retail packing.6. Lubricating oils, brake fluid, transmission fluid, and other vehicular fluids and

maintenance products in retail packing.7. Tyres and tubes.8. Storage batteries.9. Arms and ammunition.10. Paints, distempers, enamels, pigments, colours, varnishes, gums, resins, dyes,

glazes, thinners, blacks, cellulose lacquers and polishes sold in retail packing.11. Fertilizers.

12. Cement sold in retail packing.13. Tiles sold in retail packing.14. Biscuits, confectionary, chocolates, toffees and candies.15. Other goods and products sold in retail packing.

Income Tax


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Finished products and articles of textile, leather, carpets, surgical goods and sports are goodarebrought at normal rate regimei.e. 17%W.E.F. 13th June 2013.Zero rating is withdrawn and replaced with exemption in respect of different local supplied itemsincluding dairy product, stationary products, cotton seed, soyabean meal, energy saver

lamps etc. W.E.F. 13th June 2013. Accordingly local / domestic supplies of these items wouldnot be entitled to claim refund.Sales Tax withholding agent is now required to withheld sales tax at applicable rate onpurchases from unregistered person. No provision for input tax adjustment is available onsuchwithholding as well.Extra sales tax @ 5% in addition to the standard of 17% is applicable on unregisteredcommercial and industrial consumers of electricity and gas having monthly bill in access ofRs. 15,000. W.E.F. 13thJune 2013.Partial sales tax exemption on war affectedareas including KPKis withdrawn.Sales tax exemption on supplies against international tender is withdrawn.SalesTax reduced rate facility is withdrawn from master batches andshoe adhesive

Federal Government is empowered to charge, levy and collect a further duty of 2% of thevalue on excisable goods / servicessupplied to unregistered persons.Record relating to gate passes and transport receipts are prescribed as the documents to bemaintained under theFederal ExciseAct, 2005 (the Act).

Amendment is proposed in the Act to allow Commissioner (Appeals) to grant stay of 30 daysfor recovery of taxleviedto avoid unduehardship to thetaxpayer.Explanation is proposed to be added to sections 35, 45 and 46 of the Act to specify that the

powers under thesesections areindependent of the powersunder section 42B of theAct.Amendment is proposed to empower Chief Commissioner to post officer of Inland Revenueto the premises of registered person or class of such persons for monitoring purpose.

Amendment is proposed to allow monitoring or tracking of production, sales, clearances,stocksand anyother related activity by electronic or other prescribed means.Therate of Federal Excise Duty on aerated beverages is beingincreased from 6% to 9%.The three tier structure of chargeability of Federal Excise Duty on cigarettes is beingreplaced by a two tier specific rate structure.

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Federal Excise Duty

Federal Excise Duty @ 40 paisa per kg on imported oil seeds and 10% ad.val. on motor vehicles of

cylinder capacity of 1800ccor aboveare being proposedto be charged.

The scope of chargeability of Federal Excise Duty on financial services is being expanded by

making allkinds of financial services to be chargeable to Federal Excise Duty @ 16%.

Followingexemptionsof Federal ExciseDutyareproposedto be withdrawn:

On both imported and locally purchased hydraulic cement by petroleum or energy sector

companies;

Transformer oil if used in the manufacture of transformers supplied against international tenders to

a project financedout of funds providedby theinternationalloansor aidgiving agencies; and

Services provided by Asset ManagementCompanies.

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Sales Tax


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Income Support Levy

The Finance Bill hasproposed Income Support Levy @ 0.5% on net moveable wealth exceedingone million rupees.

Highlights


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Budget at Glance (Rupees in Billions)

a

ec

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(b) Less provincial share 1,502


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Pakistan's Economy at Glance

During the current financial year, Pakistan economy has been adversely affected by a number of factorslike terrorism effecting internal law & order situation, power shortages, rampant corruption from thepowerful sections of the society, in/low efficiencies of the government machinery, uncertainties relatingto politics & elections, unfavorable movements in the world commodity prices, tough situation at thefront of the Countrys external affairs, low foreign direct investment and low level of confidence of thelocal investor. The state of economy is facing severe macroeconomic challenges resulting into followingadverse outcomes:

The GDP growth rate was targeted at 4.3 percent, but estimates put it at 3.6 percent ofGDP.It is expected that the fiscal deficit would end up at about 8.8 percent of GDP (aboutRs.2. trillion), which is approximately 80 percent higher than the target of 4.6percent.During the first nine months of the current fiscal year 2012-13, Public Debt increasedby Rs. 1,602 billion, reaching a total outstanding amount of Rs. 13,626 billion; anincrease of 13 percent in nominal terms. Pakistan External Debt and Liabilities (EDL)stock was recorded at US$.60.9 billion as of March 2013 against US$.60.3 billion in

June2012.The revenue target was set at Rs2.381 trillion initially and now a massive shortfall ofmore than Rs. 350 billion is expected for the current year.Total investment was targetedat 14.92 percent, but only14.22percentwas achievable.The investment-to-GDP ratio was targeted at 13.32 percent, but it stood at 12.6percent.The targeted current account deficit was of US$.2 billion, but it is expected that by theend of theyear, theactual deficit will be aroundUS$.2.900 billion.

Agriculture grew by 3.3 percent compared to 3.5 percent of the previous year.Services sector witnessed a growth of 3.7 percent compared to 5.3 percent of theprevious year.

However, following certain positive & encouraging developments has also been witnessed during thesameperiod:

The inflation rate, the Consumer Price Index (CPI) stood at 7.8 percent during (July-April) of the current fiscal year as compared to 10.8 percent in the comparable periodof the last year.The SBP discount rate has been reduced to 9.5 percent on December, 2012 in order toboost private sector credit & investment.During July-April, 2013, Pakistan has received US$.11.600 billion on account ofWorker's remittances as compared to US$.10.900 billion in comparable period.Despite of all the negativities at the economic arena, exports has been recorded at the

same level of US$.20.500 billion in July-April compared with the same period of lastyear.Per capita real income has risen to US $ 1,368 from US $ 1,323.Imports during the first ten months (July-April) of the current fiscal year (2012-13)decreased by 1 percent compared with thesame period of last year, reachingtoUS$.33 billion. The current account deficit is US$.1.4 billion as against US$.3.4 billionin samecomparable period in 2011-12.Largescale manufacturinggrew by 2.8per cent,compared to 1.2 per cent during2011-12.

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The Pakistani economy will have to be brought back on the right direction through a series of policies,including structural reforms, stabilisation measures and painful actions. The main positive point aboutour economy is that most of the problems are due to management issues and not owing to economicimbalances.

On the regional economic front, World Bank in its latest publication commented that the South Asia isregainingits economic momentum, butthe recovery in the world's region with the largest number of poorpeople could falter in the absence of a stronger investment climate. The combined growth of

Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka was just 4.7 percentin 2012, substantially below pre-crisis levels. A pick-up to 5.5 percent can be expected in 2013 withongoing efforts to regain fiscal space and boost private investment. But given the uncertain globalenvironment, it will be important to strengthen the investment climate.A brief comparison of the currentbasic economic indicators of major SouthAsian economies is given below:

Macroeconomic policies to tackle the adverse effects of the global downturn have left the South Asiancountries with weaker fiscal and monetary options to stimulate growth today. With the exception of

Afghanistan, economic growth across other South Asian countries- Bangladesh, Bhutan, Maldives,Nepal, and Sri Lanka-has been moderating or stagnating. A significant drop in the region's exports andfixed investment are primarily responsible for South Asia's growth moderation. Private consumptionremained stable, helped by resilient remittance flows, and is expected to only pick up slowly due toeffects of persistent inflation, fiscal consolidation and slow recovery in disposable income. The overallreal effective exchange rate depreciation across South Asia reflects weak economic fundamentals.International reserves fell below critical levels of two months of import coverage in Pakistan and onemonth in Maldives, reflecting the two countries' difficult external situations.

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*Bangladesh*Sri Lanka*India

*Economy Watch


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Income Tax

Proposed Significant Changes in Income Tax

SET OFF OF LOSSES Section 56 (1)

The proposed amendment seeks to amend section 56 to restrict adjustment of losses in other headsof income as specified in Section 11 against incomefrom salary.

GROUP TAXATION Section 59AA (5)

The proposed amendment seeks to bring more clarity in the provision for group taxation by amending section

59AA. Finance Bill proposes to incorporate Group designation rules or regulations of Securities & Exchange

Commission of Pakistan as an additionalprerequisite foravailing group taxation.

GROUP RELIEF Section 59B (2) (g)

The proposed amendment seeks to bring more clarity in the provision for group relief. It is proposed toincorporate Group designation rules or regulations of Securities & Exchange Commission ofPakistan as an additional prerequisite for availing group relief.

DEFINITION OF COMPANY Section 80 (2) (b)

Finance Bill seeks to amend the definition of company to bring more clarity by specifically naming NonProfit organizations in the definition of company & separately mentioning societies (cooperative &finance) and trusts.

UNEXPLAINED INCOME OR ASSETS Section 111 (1)

In order to restrict the unauthorized use of agricultural income by tax payers to avoid penalprovisions of Section 111, the proposed amendment seeks to limit credit of agricultural income tocases where provincial agricultural income tax has duly been paid. Agricultural income was used byassessees to bridge gap between their income & expenditure without any supporting documents asagricultural income was a provincial levy. In order to limit its use to genuine persons, credit of

Agricultural Income shall be given in proportionto the provincial agricultural income tax duly paid.

MINIMUM TAX ON THE INCOME OF CERTAIN PERSONS Section 113 (1) & (2)

Minimum Tax rate on the income of certain persons was reduced from 1% to 0.5 % in the Finance Act

2012 whereas the proposed amendment seeksto increase rate of turnover tax in section 113 to 1% justafter one year is unfortunateand depicts lack of consistencyin the policies.

MINIMUM TAX ON BUILDERS Section 113A & B

The substitution of sections 113A and 113B has withdrawn the facility of final taxation of certainretailers and they shall now be subjected to normaltaxation.


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Income Tax

Finance Bill proposes to amend section 113A to provide for charging minimum tax on the income ofbuilders which shall be computed at the rate of Rs. 25 per square foot as per the construction or siteplan approved by the relevant regulatory authority. As the proposed tax will be charged at the time ofsale/booking, it is more likely that the same will be passed on to the purchasers of commercial orresidentialproperty.

Finance Bill proposes to amend section 113B to provide for charging minimum tax on the income ofbuilders which shall be computed at the rate of Rs. 50 per square yard as per the lay out or site planapproved by the relevant regulatory authority. As the proposed tax will be charged at the time ofsale/booking of plots, it is more likely that the same will be passed on to the purchasers of commercialor residential property.

RETURN OF INCOME Section 114(1)(b)(viii)

The proposed amendment seeks to lower the limit for filing of returns by commercial and industrialelectricity consumers who have paid electricity bills of Rs. 500,000 in the tax year. Previously limit wasset at Rs. 1 million. The proposed amendment is aimed at increasing the number of tax return filers sothat tax net could be expanded.

RETURN OF INCOME Section 114(1)(b)(ix)

A new sub clause to Section 114(1)(b) has been proposedto be inserted which will make the filing of taxreturns mandatory for the members of trade associations & professional bodies which includeChamber of Commerce and Industry or any trade or business association or any market committee orany professional body including Pakistan Engineering Council, Pakistan Medical and Dental Council,Pakistan Bar Council or any Provincial Bar Council, Institute of Chartered Accountants of Pakistan orInstitute of Cost and Management Accountants of Pakistan. The proposed amendment is aimed atincreasing the number of tax return filers by making it mandatory for the above mentioned persons tofile taxreturns irrespective of their incomes.

RETURN OF INCOME Section 114 (1A)

The proposed amendment seeks to raise the limit for filing of return by individuals whose income frombusiness ranges between Rs. 300,000 to 400,000 but shall not pay any tax thereon. Proposedamendment has been made to align the limit for filing tax return with increase in threshold of taxableincome from Rs.350,000 to Rs.400,000 by FinanceAct 2012.

RETURN OF INCOME Section 114 (4)

The proposed amendment seeks to modify the time limit given by Commissioner Inland Revenue forfiling of tax return by empowering him/her to require the person to file the tax return in time frame of less

than a month. Previously, onemonth notice was required as per provisions of section 114(4). Proposedamendment may result in hardship to assessees as in absence of any minimum period, tax officialsmaymisuse the said provision.

RETURN OF INCOME Section 114 (6)(b)

A new sub clause has been proposed to be inserted in Section 114(6) of the Income Tax Ordinancewhich shall make it mandatory to have a prior approval of Commissioner before revising the tax return.

At present the provisions require that the reasons for the revision of tax returns should be stated inwriting and prior approval of Commissioner was not required. This proposed amendment may result inundue hurdles and procedural delaysin therevision(s) of tax return.


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Income Tax

PERSONS NOT REQUIRED TO FURNISHA RETURN OF INCOME

Section 115 (1)

The proposed amendment seeks to withdraw the exemption of filing of tax return by the salariedpersons whose income entirely comprised of salary income less than Rs. 500,000. Now all thesalariedindividuals, whose incomeis taxable, will be required to file their income tax return individually.

PERSONS NOT REQUIRED TO FURNISH

A RETURN OF INCOMESection 115 (4)

The proposed amendment aligns section 115(4) with amendments proposed under sections 113Aand113B wherein tax has been imposed on Builders and Developers. Moreover, exemption from filing oftax returns for salaried tax payers whose taxable income was less than Rs. 500,000 has beenwithdrawn.

WEALTH STATEMENT Section 116

Filing of wealth statement is being proposed to be made mandatory for every tax return filer (individual)

including salaried individuals, business individuals, persons having income subject to final taxationwithout any minimum limit. It is one of themost major changes which finance bill proposes coupled withamendments in section 114. If these amendments are approved by the Parliament, they can help indocumentation of the economy. However, the ability of FBR to ensure the compliance and handling ofsuch a quantum of data can be questioned.

METHOD OF FURNISHING RETURNS AND OTHER DOCUMENTS. Section 118, 119

As the filing of tax returns has been proposed to be made mandatory for all salaried tax payers,changes have accordingly been proposed in sections 118 & 119. Salaried individuals having salary ofRs. 500,000 or more shall be required to file their returns electronically as was the requirement earlierwhereas salaried individual whose salary income is less than Rs. 500,000 can file returns manually.The tax return filed will also be accompanied by wealth statement along with wealth reconciliationstatement.

INVESTMENT TAX ON INCOME Section 120 A

The proposed amendment seeks to take the power of formulating & announcing any scheme ofinvestment tax on income from Federal Board of Revenue. It is proposed that FBR should have nopower to introduce anymoney whitening scheme as was done in past. It should discourage taxevasionin long term.

PROVISIONAL ASSESSMENT Section 122 C

Time duration for filing of revised return in case of provisional assessment is being proposed to bereduced from 60 days to 45 days in case of all tax payers. The proposed amendment will bring unduehardship on assessesas the provisional assessment is not appealable.

APPOINTMENT TO THE APPELLATE TRIBUNAL Section 130

Section 130 is proposed to be modified so that an officer of Inland Revenue Service and a lawgraduate having at least fifteen years of service in BS-17 and above could also be appointed as aJudicial member of the tribunal.


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Income Tax

SALARY Section 149

The proposed amendment seeks to withdraw power of giving credit of tax with held under other headsto employee as well as tax credit admissible under sections 61, 62, 63 and 64 during the tax year asnow the filing of tax returns is being mandatory for all the salaried individuals. However, this proposed

amendment will result in hardship to employees as obtaining refund after filing of tax return for smalldeductions like bank withdrawals & mobile bills etc. is not worth theeffort.

PAYMENTS TO NON-RESIDENT Section 152

Last year the scope of with holding tax from Payments to Non-residents was widened and payments tonon-resident on account of sale of goods, services and contract were also shifted from section 153 tosection 152. But the prescribed persons referred in section 152 was not defined. Now the sameprescribedpersons as defined in Section 153(7) shall be withholdingagent for section 152 as well.

PAYMENTS FOR GOODS, SERVICES AND CONTRACTS Section 153

The scope of prescribed persons as withholding agent has been widened and now every personregistered under Sales Tax Act shall also be liable to with hold tax on its purchases, services andcontracts. This amendment will drag all individual and AOP without any threshold to make them liablefor withholding tax on such payments. And they can be treated as assessee in default in case theirsuppliers refuse to allow them to withhold tax. This amendment shall have severe effect on localbusiness persons who are registered with Sales Tax Act. Since the provision of clause 45 of part IV ofthe Second Schedule is intact; the manufacturers cum exporters shall not be liable to withhold tax fromsuchpayments

PAYMENTS TO TRADERS AND DISTRIBUTORS / RETAILERS Section 153A/236G/236H

Section 153A was inserted last year whereby the manufacturers were required to collect advance taxat the time of sale made to traders and distributors @ 1% of gross sales. This amendment was neveraccepted by the business community and remained controversial. Resultantly this section remainedsuspended during the year and no tax was collected. Now this section has been omitted. But similarsection has been inserted as Section 236G and 236H and now manufacturer and commercialimporters have been made liable to collect tax but the products have been specified for application ofthese provisions. By virtue of these sections every manufacturer or commercial importer of electronics,sugar, cement, iron and steel products, fertilizer, motorcycles, pesticides, cigarettes, glass, textile,beverages, paint or foam sector, at the time of sale to distributors, dealers and wholesalers, shallcollect advance tax at the rate of 0.1% of gross sales and to the retailers @ 0.5% of the gross sales towhom such sales have been made. Credit for the tax so collected shall be allowed in computing the tax

due by the distributor, dealer or whole-seller or retailer as the case may be against taxable income forthe tax year in which the tax was collected.

WITH HOLDING OF TAX ON RENTAL INCOME Section 155

The scope of withholding agents has been widened and now Charitable Institutions, privateeducational institutions, boutique, a beauty parlour, a hospital, a clinic or maternity home and individualand AOP paying gross annual rent of Rs. 1.5 million shall also be liable to withhold tax from rent paid tothe land lord. Further the slabs of charging rates and withholding tax rates have been revised and nowmaximum rate hasbeen raised from 10% to 17.5%of gross rentals.


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CERTIFICATE OF COLLECTION OR DEDUCTION OF TAX Section 164

Previously anycertificate issuedby thewithholdingagent to a tax payer was the conclusive evidenceofcollection or deduction of tax for the purpose of claiming credit against his tax liability. Now amendmenthasbeen proposed and mere certificate shall not be sufficient for claiming credit of withholding tax. The

tax payer has to collect the evidence of payment of tax i.e. copies of tax paid challans (CPR) from thewithholding agent. This will be an uphill task for a withholding agent. On the one hand he will deduct /collect tax on behalf of FBR and deposit with the bank. Then he has to supply copy of each challan toeach tax payer. Since all taxpayments are e-filed andare verifiable from the system. Ideally the systemshould generate such certificate and shouldbe accepted by FBR.

STATEMENTS Section 165

Every withholding agent has to file monthly statement giving complete particulars of the person fromwhom tax has been deducted. Certain quarters specially banks were reluctant to give information oftheir account holders due to certain restriction contained in Protection of Economic Reforms Act,Banking Companies Ordinance, Foreign Exchange Regulation Act or SBP Regulations. Now anexplanation has been added which has over-ridden all such conflicting provisions. The FBR shall haveaccess to all information which were previously been kept secret under the garb legal provisions ofrelevant statutes. Specific section 165A has also been introduced for banks to provide all informationwhich were restricted earlier. The tax payer has to be cautious and careful while transacting throughbanks as they can be made accountable and ask to explain each transaction routedthrough banks.

FURNISHING OF INFORMATION BY BANKS Section 165A

A new section has been introduced in continuation of section 165. Now every banking company shallprovide to theBoard thefollowing information in prescribed format:

online access to its central database containing details of its account holders and alltransactionsmadein their accounts;a list containing particulars of deposits aggregating rupees one million or more made during thepreceding calendarmonth;a list of payments made by any person against bills raised in respect of a credit card issued tothat person, aggregating to rupees one hundred thousand or more during the precedingcalendar month;a consolidated list of loans written off exceeding rupees one million during a calendar year; anda copy of each Currency Transactions Report and Suspicious Transactions Report generatedandsubmitted by it to the Financial Monitoring Unit under the Anti-MoneyLaunderingAct, 2010.

Further each banking company shall also make arrangements to nominate a senior officer at the headoffice to coordinate with the Board for provision of any information and documents in addition to thoselisted above, as may be required by the Board. The banking companies and their officers shall not beliable to any civil, criminal or disciplinary proceedings against them for furnishing information requiredunder this Ordinance. The Board shall use all information received under this section for tax purposesand will keep it confidential. This amendment shall have deep rooted effect to unearth the hugeundeclared deposits with the banks.At the same time it will be tool in the hands of FBR which they canuse or misuse. We suggest that one time amnesty should be given before to use this informationagainst the tax payers. The tax payer has to be very careful while transacting through banks and eachtransaction has to be explainedin order to avoid anytaximplication.


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Income Tax

TAX COLLECTED / DEDUCTED AS FINAL TAX Section 169

Tax deducted on Dividend income received by company was adjustable but thetax rate applicable wasrestricted to 10% or 7.5% as the case may be. Now it is proposed that such tax deducted shall be

treated as final discharge of taxliability of thecompany in respect of dividend income.

ADDITIONAL PAYMENT FOR DELAYED REFUNDS Section 171

Payment of Refund has always been an unpleasant event for the tax department. A number of caseshave been brought to courts and FTO for inordinate delay by the department. Compensation could beclaimed by the tax payer for such delays if the refund was not paid within three months from the datewhen the refund becomes due; which was the date of assessment. Now the due date of refund wouldbe; when the refund order is issued. Resultantly the tax payer is left at the mercy of the tax officer anddeterrence of compensation on tax department shall now eased out. Though the time limit of 60 daysfor passing refund order is provided in Section 170; but it is seldom observed by the tax department.Because of such inordinate delay in passing refund order; courts / FTO ordered for compensation fromthe date of assessment. Now an explanation has been added to section 171 to avoid genuinegrievance of the taxpayer.

REPRESENTATIVES Section 172

The proceeding against non-resident can be conducted through his representative in Pakistan. Aperson who has any business connection with non-resident person can also be treated asRepresentative. An explanation has been added to include transfer of an asset or business inPakistan by a non-resident in the expression businessconnection for thepurpose of this section.

AUDIT / SELECTION FOR AUDIT BY BOARD Section 177 / 214C

Explanations have been added in section 177(10) and section 214C(3) for the removal of doubt thatthe powers of the Commissioner under section 177 are independent of the powers of the Board undersection 214C and nothing contained in section 214C restricts the powers of the Commissioner to callfor the record or documents including books of accounts of a taxpayer for audit and to conduct auditunder this section.Again an attempt has been made to undo the decision of Lahore High court where itwas held that section 177 is subservient to section 214C. And once the case is selected for audit by theBoard u/s 214C; only then the audit can be conducted u/s 177. Now the Commissioner can makeindependent selection and call for record for audit and it is not necessary that the case is selected bythe Board. As stated above this issue was thrashed out by the learned High Court. Mere addingexplanations may not be helpful for the department. Sub-section 1A has been inserted in Section214C to empower the Board to keep the parameters of selection of case for audit, confidential. Thehigher courts have already raised objection and has advised the Board to make the parameter public.

Again an attempthas been made to override the rulings of the High Court.

TAX PAYERS'S REGISTRATION Section 181

Proviso has been added to allow the Board to use Computerized National Identity Card issued byNADRA in place of National Tax Number (NTN) in case of individual tax payer.


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DISPLAYING OF NATIONAL TAX NUMBER (NTN) Section 181C

Every person deriving income from business chargeable to tax, who has been issued a National TaxNumber, shall display his National Tax Number at a conspicuous place at every place of his business.Please note that penalty of Rs 5,000 has been suggested for non-compliance to this law. Thereforesuch business persons must display NTNcertificate in their reception area to avoid any such penalty.

OFFENCES AND PENALTY Section 182

Irrational upward revision has been proposed in levy of penalties. Penalty is always levied for willfuldefault and had never been major source of revenue by the Government. But it appears that now it hasmade major source of revenue for the Government and particularly it is being imposed on innocent taxpayer. Following is the comparison of existingpenalties and proposed penalties:

OFFENCE EXISTING PENALTY PROPOSED

1-Fails to file return u/s 114

within due date

0.1% of tax payable for each

day of default subject tominimum of Rs 5,000 andmaximum of 25% of tax

0.1% of tax payable for each day

of default subject to minimum ofRs 20,000 and maximum of 50%of tax payable. Even if no tax ispayable; the penalty shall be Rs20,000/=

2-Fails to furnish a statementu/s 115, 165 or 165A, withindue date

0.1% of tax payable for eachday of default subject tominimum of Rs 5,000 andmaximum of 25% of taxpayable

Rs 2,500/= for each day ofdefault subject to minimum ofRs 50,000/=

3-Fails to furnish wealths t a t e m e n t o r w e a l t hreconciliation

0.1% of tax payable for eachday subject to minimum of Rs5,000 and maximum of 25% oftax payable

Rs 100 for each day ofdefault

4-Fails to produce record foraudit u/s 177

On 1 Notice Rs 5,000st

On 2 Notice Rs 10,000nd

On 3 Notice Rs 50,000rd

On 1 default Rs 5,000st

On 1 Notice Rs 25,000st

On 2 Notice Rs 50,000nd

On 3 Notice Rs 100,000rd

On 1 default Rs 25,000st5-Fails to furnish information

required u/s 176

6-Fails to display NTNcertificate at business place

On 2 default 10,000 andeach subsequent default

nd

NIL

On 2 default 50,000 andeach subsequent default

nd

Rs 5,000/=


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Income Tax

REWARD TO INLAND REVENUE OFFICERS AND OFFICIALS Section 227A

A new section has been proposed whereby the Inland Revenue Officers and Officials shall berewarded for their meritorious conduct; only on the recovery of taxes involved. In view of huge data ofinformation being grasped by the department; it would be easy for every Officer to be awarded for suchmeritorious conduct.

DIRECTORATE-GENERAL OF LAW / RESEARCH ANDDEVELOPMENT Section 230B / 230C

These two Directorates have been formed. Their functions, jurisdiction and powers are yet to benotified.

TAX ON CASH WITHDRAWAL FROM A BANK Section 231 A

The withholding tax rate on Cash withdrawal from Bank has again been raised to 0.3 %. However thethreshold of cash withdrawal in a dayremains Rs 50,000

COLLECTION OF TAX BY NCCPL Section 233AA

The scope of withholding tax by NCCPL has been widened to include margin financier, tradingfinanciers and lenders. Now in addition to member of Stock Exchange NCCPL shall collect tax fromthese persons @ 10% of profit or mark-up or interest earned by the members, margin financier, tradingfinanciers and lenders.

TAX ON MOTOR VEHICLES Section 234

Income tax paid along with token tax has been allowed to pay in lump sum for 10 years. Such advancetax shall be adjustable against tax liability. The details of tax rate is given in thefollowing pages. A majorchange has been proposed in section 234(5); whereas the tax so paid for goods transport vehicle

which was final discharge of tax liability of transporter on income arising from transport of goods; shallnow be adjustable. It means that they shall file normal return and claim this advance tax against theirtax liability.

TRANSITIONAL ADVANCE TAX PROVISIONS Section 236D/ 236E/ 236F/ 236I/236J

The scope of withholding tax has been widened to add further categories under the garb of Advancetax. The list of with-holding tax agents has been stretched. The brief of such advance taxes is beingexplained as under:

Every prescribed person shall collect advance tax at the rate of 10% on the total amount of the bill froma person arranging or holding a function in a marriage hall, marquee, hotel, restaurant, commerciallawn, club, a community place or any other place used for such purpose. Where the food, service orany other facility is provided by any other person, the prescribed person shall also collect advance taxon the payment for such food, service or facility at the rate of 10% from the person arranging or holdingthe function. The advance tax so collected shall be adjustable. In this section, function includes anywedding related event, a seminar, a workshop, a session, an exhibition, a concert, a show, a party orany other gathering held for such purpose; and prescribed person includes the owner, a lease-holder,an operator or a manager of a marriage hall, marquee, hotel, restaurant, commercial lawn, club, acommunity place or any other place used for such purpose.

ADVANCE TAX ON FUNCTIONSAND GATHERINGS (236D):


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ADVANCE TAX ON FOREIGN-PRODUCED FILM, TV PLAYS AND SERIALS (SECTION 236E)

ADVANCE TAX ON CABLE OPERATORS AND OTHER ELECTRONIC MEDIA (SECTION 236F)

(Page 26)

COLLECTION OF ADVANCE TAX BY EDUCATIONAL INSTITUTIONS (SECTOION 236I)

ADVANCE TAX ON DEALERS, COMMISSION AGENTSAND ARHATIS (SECTION 236J):

TAX RATES FOR INDIVIDUALAND AOP

Any person responsible for censoring or certifying a foreign-produced film, a TV drama serial or a play,for screening and viewing, shall, at thetime of censoring or certifying, collect advance tax at therates ofRs 1,000,000 or Rs 100,000 per episode respectively. The advance tax so collected shall beadjustable.

Pakistan Electronic Media Regulatory Authority, at the time of issuance of license for distributionservices or renewal of the license to a licensee, shall collect advance tax at the rates given at thefollowing pages. The tax collected under sub-section (1) shall be adjustable. For the purpose of thissection, "cable television operator", DTH, Distribution Service, electronic media, "IPTV", "loopholder", MMDS, "mobile TV", shall have the same meanings as defined in Pakistan Electronic MediaRegulatory Authority Ordinance, 2002 and Pakistan Electronic Media Regulatory Authority Rules,2009.

There shall be collected as advance tax at the rate of 5% of the amount of fee paid to an educational

institution. The person preparing fee voucher or challan shall charge advance tax in the manner the feeis charged.Advance tax under this section shall not be collected from a person where annual fee doesnot exceed two hundred thousand rupees. The term fee includes, tuition feeand all charges receivedby the educational institution, by whatever name called, excluding the amount which is refundable. Taxcollected under this section shall be adjustable against the tax liability of either of the parents orguardian making payment of the fee.

Every market committee shall collect advance tax from dealers, commission agents or arhatis, etc. atthe rates given at the following pages at the time of issuance or renewal of licences. The advance taxcollected shall be adjustable. In this section market committee includes any committee or body

formed under any provincial or local lawmade for thepurposes of establishing, regulating or organizingagricultural, livestock and other commodity markets.

The following changes are proposed to be made to the First Schedule of the Income Tax Ordinance,2001.

:

236G. Advance tax on sales to distributors, dealers and wholesalers.-236H. Advance tax on sales to retailers.-

We have already explained the above two amendments in earlier paras under section 153A

(Page 27)

(Page 27)

FIRST SCHEDULE


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Income Tax

S.No.

1

2

3

4

5

6

7

Where taxable income does not exceed Rs.400,000

Where the taxable income exceeds Rs.400,000

but does not exceed Rs.750,000


but does not exceed Rs.1,500,000

Where the taxable income exceeds Rs.1,500,000





but does not exceed Rs.6,000,000.


for Non- Salaried Individual and AOP for Tax

Year 2014Rate of Tax

0%

10.00% of the amount

exceeding Rs. 400,000

Rs. 35,000 + 15.00% of the

amount exceeding Rs.750,000

Rs. 147,500 + 20.00% of the

amount exceeding Rs.1,500,000

Rs. 347,500 + 25.00% of the


Rs. 722,500 + 30.00% of the


Rs. 1,322,500 + 35.00% of the


SALARIED INDIVIDUAL TAX RATE FOR TAX YEAR 2014

First Schedule, Part I, Division I

S.No.

1

2

3

4

5

6

7

8

9

10

11

12

Where the taxable income does notexceed Rs.400,000


but does not exceed Rs.500,000,


but does not exceed Rs.800,000,Where the taxable income exceeds Rs.800,000

but does not exceed Rs.1,300,000,







Tax Rate Table for Salaried Persons forTax Year 2014

Rate of Tax

0%

5.00% of the amount


Rs. 5,000 + 7.50% of the

amount exceeding Rs. 500,000Rs. 27,500 + 10.00% of the

amount exceeding Rs. 800,000

Rs. 77,500 + 12.50% of the

amount exceeding Rs. 1,300,000

Rs. 140,000 + 15.00% of the



but does not exceed Rs.3,000,000,Where the taxable income exceeds Rs.3,000,000







Rs. 200,000 + 17.50% of the


Rs. 270,000 + 20.00% of the

amount exceeding Rs. 2,600,000Rs. 350,000 + 22.50% of the


Rs. 462,500 + 25.00% of the


Rs. 587,500 + 27.50% of the


Rs. 1,412,500 + 30.00% of the



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Income Tax

S.No.

1

2

3

4

5

6

7

Where the gross amount of rent does not

exceed Rs. 150,000

Where the gross amount of rent exceeds

Rs. 150,000 but does not exceed Rs. 400,000


Rs. 400,000 but does not exceed Rs. 1,000,000


Rs. 1,000,000 but does not exceed Rs. 2,000,000

Where the gross amount of rent exceedsRs. 2,000,000 but does not exceed Rs. 3,000,000


Rs.3,000,000 but does not exceed Rs. 4,000,000


Rs. 4,000,000

Gross amount of rent Rate of Tax

Nil

5.00% of the gross amount


Rs. 12,500 + 7.50% of the gross


Rs. 57,500+10.00% of the gross


Rs.157,500+12.50% of the grossamount exceeding Rs.2,000,000

Rs. 282,500+15.00% of the gross


Rs. 432,500+17.50% of the gross


Tax Rate for Company for Tax Year 2014 First Schedule, Part I, Division II

RATES FOR COMPUTING TAX ON RENT INCOME

The existing slab rates for property income has been enhanced from 4 to 7 and 3 to 6 in the case ofIndividuals/AOPs and Companies respectively.

Income from Property by the Individual

and AOP

First Schedule, Part I, Division VI(a) for Income

from Property u/s 15 and 155 of the ITO, 2001


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Income Tax

S.No.

1

2

3

4

5

6

Where the gross amount of rent doesnot exceed Rs. 400,000


Rs. 400,000 but does not exceed Rs. 1,000,000







Where the gross amount of rent exceedsRs. 4,000,000

Gross amount of rent Rate of Tax

5.00% of the gross amountof rent

Rs. 20,000 + 7.50% of the gross


Rs. 65,000 + 10.0% of the gross


Rs.165,000+12.50% of the gross


Rs. 290,000+15.00% of the gross


Rs. 440,000+17.50% of the grossamount exceeding Rs. 4,000,000

Income from Property by the Company First Schedule, Part I, Division VI(b) for

Income earned u/s 15 of the ITO, 2001

The above rates shall also be applicable for withholding tax on rental payments u/s 155 bythe prescribed persons.

RATES FOR ADVANCE TAX ON IMPORTS First Schedule, Part II

IndustrialUndertaking Companies

Other thanIndustrial

Undertaking andCompany

5.00% 5.00% 5.50%

RATES FOR PAYMENTS FOR GOODS AND SERVICES First Schedule, Part III, Division, III

Particulars C ompaniesOther than

CompaniesGOODS 3.50% 4.00%

SERVICES 6.00% 7.00%

CONTRACTS 6.00% 6.50%


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Income Tax

TAX ON MOTOTR VEHICLES First Schedule, Part IV, Division, III

The bill seeks to align collection of income tax where motor vehicle tax is collected in lumpsum by the Province in the following manner.

PURCHASE OF MOTOR CARS AND JEEPS First Schedule, Part IV, Division, VII

The rate of income tax under section 231B has been enhanced for all categories of cars/jeeps.The proposed amount of tax is tabulated as under.

ADVANCE TAX ON TRANSACTIONS IN BANK First Schedule, Part IV, Division, VIA

Rate of advance tax on cash withdrawal has been proposed to be enhanced from existing rateof 0.2% to 0.3% where such withdrawal exceeds Rs. 50,000.

ADVANCE TAX AT THE TIME OF SALE BY AUCTION First Schedule, Part IV, Division, VIII

The bill proposes to increase the rate of collection of tax at the time of sale by auction undersection 236A from 5% to 10%.

ADVANCE TAX ON GATHERINGS AND FUNCTIONS First Schedule, Part IV, Division, XI

The bill proposes to insert a new section 236D to collect advance tax at the rate of 10% fromfunctions and gatherings by hotels, lawns, clubs etc.


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Income Tax

ADVANCE TAX ON FOREIGN-PRODUCED FILMS

AND TV PLAYS

First Schedule, Part IV, Division, XII

Rate of collection of advance tax under section 236E shall be as follows:

ADVANCE TAX ON CABLE OPERATORS AND

OTHER ELECTRONIC MEDIA

First Schedule, Part IV, Division, XIII

The rate of advance tax under section 236F shall be as under.

CABLE TELEVISION OPERATORS

OTHER DISTRIBUTION SERVICES

H

H-I

H-IIR

B

B-1

B-2B-3B-4

B-5

B-6

B-7

B-8

B-9

B-10


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Income Tax

SATELLITE TV STATION

LANDING RIGHTS PER CHANNEL

ADVANCE TAX ON SALE TO DISTRIBUTORS,

DEALERS OR WHOLESALERS

First Schedule, Part IV, Division, XIV

The Bill seeks to impose collection of advance tax @ 0.1% of gross sales made by certainmanufacturers and commercial importers to distributors, dealers and wholesalers under newlyinserted section 236G of the Income Tax Ordinance, 2001.

ADVANCE TAX ON SALE TO RETAILERS First Schedule, Part IV, Division, XV

The Bill seeks to impose collection of advance tax @ 0.5% of gross sales made by certainmanufacturers commercial importers to retailers under newly inserted section 236H of the IncomeTax Ordinance, 2001.

ADVANCE TAX BY EDUCATIONAL INSTITUTIONS First Schedule, Part IV, Division, XVI

As proposed by the Bill, advance tax @ 5% of the amount of fee paid to an educational institutionshall be collected.ADVANCE TAX BY MARKET COMMITTEE First Schedule, Part IV, Division, XVII

The Bill proposes collection of advance tax annually from dealers, commission agents and arhatisby the Market Committee at the time of issuance or renewal of licenses to such persons. Rate of

collection of tax under section 236J shall be as under


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Withdrawn of Exemption from free or

concessional transport2 Schedule, Part I, Clause 53A(i)

nd

The finance Bill propose to withdraw the tax exemption available for free or concessional passage provided by

transporters including airlines to its employees (including the members of their household and dependents) as

providedin the 2ndschedule to theIncome Tax Ordinance, 2001.

University and Educational Institution

Income now taxable2 Schedule, Part I, Clause 92

nd

University or other educational institution established solely for educational purposes and not forpurposes of profit were exempt through 2 Schedule; now exempt facility is proposed to be withdrawalviaFinance Bill 2013.

nd

Income from Government recognized

board is now taxable2 Schedule, Part I, Clause 98A

nd

The Bill has proposed to withdraw exemption under 2 Schedule for any Income derived byInternational Cricket Council (ICC) and its management, players, coaches, medical doctors andofficials of member countries, IDI partners andmedia representatives.

nd

Dividend in Specie is proposed is now

taxable2 Schedule, Part I, Clause 103B

nd

The Bill has proposed to withdraw exemption from total income provided in 2 Schedule, part I ondividend in specie derived in the form of shares in a company

nd

Corporate Income Tax Holiday is

increased to 10 years 2 Schedule, Part I, Clause 126E

nd

Currently Corporate Income Tax Holiday for a period of 5 years is available to projects in SpecialEconomic Zones to promote industrialization and investment in the country, the period of holiday ispropose to be extendedto 10 years.

The proposed new clause would be read as follow: (126E) income derived by a zone enterprise asdefined in Special Economic Zones Act ,2012 (XX of 2012) for a period of ten years starting from thedate the developer certifies that the zone enterprise has commenced commercial operation and for aperiod of ten years to a developer of zone starting from the date of signing of the developmentagreement in the special economiczone as announced by theFederal Government.

Import of Hybrid Vehicles made cheaper2 Schedule, Part II, Clause 28

nd

The Bills propose to insert new clause in 2 schedule to encourage Hybrid vehicles for conservation offuel. Withholding tax on import of Hybrid cars with engine capacity upto 1200CC has been exempted toprovide incentive and relief. Similarly withholding tax upto 1800CC has been reduced by 50% and25%for vehicle upto 2500CCThe rate of tax under section 148 on import of hybrid cars shall be reduced as below:-

nd


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Income Tax

Reduction in Tax liability for Flying

Allowance taken back2 Schedule, Part III, Clause 1

nd

The Bill has proposed to withdraw reduction in taxliability on flying allowance by pilots, flight engineers,navigators of Pakistan Armed forces, Pakistani Airlines or Civil Aviation Authority, JuniorCommissioned Officers or other ranks of Pakistan Armed Forces and submarine allowance by theofficers of Pakistan Navy. Previously these were taxed@ 2.5% as a separateblock of income.

Engine capacity Rate of reduction in WHT

Up to 1200 cc

1201 to 1800 cc

1801 to 2500 cc

100%

50%

25%

Reduction in Tax liability for Full time teacher is

withdrawn 2 Schedule, Part III, Clause 2nd

The Bill has also proposed to withdraw reduction in liability of amount equal to 75% of a full time teacheror researcher employed in a non-profit education or research institution duly recognized by HigherEducation Commission, a Board of Education or University recognized by the Higher EducationCommission.

Scope of Minimum Tax on Cigarettes

Distributors is extended2 Schedule, Part III, Clause 7

nd

The Bill has proposed to extend the reduction in tax liability of 80% of all entities including individuals,AOP private or public companies engaged in the distribution of cigarettes manufactured in Pakistan.Previously the said reduction wasonly allowed to companies.

Advance tax on foreign produced films,

TV plays and serials2 Schedule, Part IV, Clause 56A

nd

The Bills proposed to insert a new clause which is read as under.(56A) The provisions of sub-section (7) of section 148 (tax on imports) and clause (a) of sub-section (1)of section 169 (tax collected or deducted as final tax) shall not apply to a person who is liable towithholdingtax under section 236E (Advance tax on foreign produced films,TV plays and serials).

By virtue of the above proposed inclusion the tax deducted as under would not be a final tax, instead

that wouldbe an adjustable tax against taxliabilityat theyear end.

Category Amount of tax

Foreign-produced film

Foreign-produced TV drama serial

Foreign-produced TV play (single episode)

Rs. 1,000,000

Rs.100,000 per episode

Rs. 100,000


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Income Tax

Profit on Debt is proposed to be taxable 2 Schedule, Part IV, Clause 59nd

The Bill has proposed to withdraw exemption, granted under paragraph (a) of sub clause (iv) of clause59, from tax deducted on income or profits received by any resident individual from:

DefenseSaving Certificates;Special Savings Certificates;SavingAccounts;Post Office SavingsAccounts; orTerm Finance Certificates (TFCs)

Previously thedeposits upto Rs. 150,000 were exempt.

Tax on Hajj Operators 2 Schedule, Part IV, Clause 72And

The Bill proposed to add the new clauses as under

(72A) the provisions of clause (1) of section 21 (Deductions not allowed), section 113 (Minimum Tax)and section 152 (Payment to non-residents) shall not apply in case of a Hajj Group Operator in respectof Hajj Operations provided that thetax has been collectedand deposited as follows:

Tax Year Rate

2013

2014

3,500/- per Hajji

5,000/- per Hajji

Tax on Imports on Industrial Undertaking 2 Schedule, Part IV, Clause 72Bnd

The Finance Bill propose to include a new clause by virtue of which it propose to exempt the tax onimports of an industrial undertaking, if the tax liability for the current tax year calculated on the basis ofhigher of the determined tax liability of any of the preceding two tax years has already been paid and acertificate to this effect is issuedby theconcerned Commissioner.

Initial allowance and First year allowance 3 Schedule, Part II, Clause 1rd

The Bill has proposed to reduce the rate of initial allowance on plant and machinery from 50% to25%. This would affect the first year profitability and taxation of the newly established units in

Tax on Income computed of a Banking 7 Schedule, Rule 6th

The Bill has proposed to give relief to the Banking sector by restricting the rate of tax, on dividendreceived from Money Market Funds and Income Funds, at the rate of 25% for tax year 2013 andonwards, previously it was due to be taxed@35% from the tax year 2014 and onwards.


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CREST Section 2(5AC)

Definition of CREST i.e. Computerized Risk Based Evaluation of Sales Tax is proposed to be insertedin SalesTaxAct., in order to provide legal cover.

It is important to note FBR recently developed CREST software which has successfully been

implemented in February this year. The software electronically cross verifies input / output declaration

of sales tax figures and in case of variation or difference confront buyer and seller to justify their

position. Large number of cases has been recently framed by the tax authorities on the bases of

findings of the CREST. Recently Lahore High Court has granted stay in which one of the observations /

grounds wasnon existence of Legal coverage of CRESTwithin thelaw.

Proposed Significant Changes in Sales Tax

Provincial Sales Tax Section 2(22)

Definition of Provincial Sales Tax introduced in 2000 become redundant after passage of 18amendment and inception of separate sales tax authorities by provincial governments. The same isaccordingly proposedto be omitted from theSales TaxAct.

th

Supply Chain Section2(33A)

A new definition of supply chain is proposed to be inserted in Sales Tax Act. According to introduceddefinition, all stages of transactions between buyer and supplier from the basic raw material to thefinish product are covered within thedefinition of supplychain.

It has been observed that in case of an incidence of input tax fraud, FBR under the umbrella of section8-A and now with this insertion of definition, can brought entire supply chain within the scope of aninquiry.

Time of supply Section 2(44)

Definition for time of supply is proposed to be redefined. In accordance to the proposed amendment,time of supply means at the time of delivery or at the time of receipt of payment whichever is earlier.

In case of part payment, the supply was required to be reported within the same tax period the partpayment is received. In case of exempt supply, it shall be accounted for in the return for the tax periodduring which the exemption is withdrawn.


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Sales Tax

Scope of Tax Section 3

Standard rate of sales tax is proposed to be increased from 16% to 17%.

An easy way is proposed to increase rate of tax to generate revenue. Again the burden of sales taxis increased on existing taxpayers by increasing rate of this indirect tax.

Further Tax Section 3(1)

Further tax @ 2% is proposed on supplies to unregistered persons. The FBR has accordinglyproposed to insert sub-section 1 in section 3. The concept of further tax is not new and it wasdiscontinued in the year 2004.

A proviso is also proposed through which powers are delegated to the government to issuenotification to provide any exclusion on specific taxable supply from application of further tax.

The purpose of introducing further tax seems to generate additional revenue from unregisteredsegment. The concept remains unsuccessful in the past. t seems that governmentrather to ensure extension of sales tax network has put their reliance on generating more revenuefrom existing network.

At the moment i

Capacity Tax / Fixed Tax Section 3(1)b

A new sub section 3(1)(b) is also proposed to be inserted to delegate powers to the Board to levy andcollect tax on taxable supplies in lieu of standard rate of tax on the basis of:-

a) Production capacity, machinery, undertaking, establishment or installations producing ormanufacturing such goods

b) Fixed basis, as it may deem fit, from any person who is in a position to collect such tax dueto thenature of thebusiness

Tax Credit not allowed Section 8(Caa)

A new sub section was proposed to disallow input tax credit where e-discrepancy indicated by CRESThas been verifiedin supply chain of such purchase.


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Sales Tax

De-Registration, blacklisting and

suspension of registrationSection 21(3)

It is proposed that input tax would remain inadmissible against purchases from black listed orsuspended unit, even the transaction is well supported with crossed cheque or banking instrumentand compliance were made in terms of section 73. Accordingly the legal cover given in this respect insection 21 is proposedto be omitted.

The element of fraud and abuse of input tax credit is increasing day by day. The policy maker ratherplugging ways and means to curb the menace are introducing amendment one after another in eachyear and yet stands completely failed. The genuine taxpayers at the other end were seriously affectedby both unscrupulous element as well as strict sales tax law, where they were put in undue burden forthemisdeed of anyone else.

Blocking of input tax adjustment / refund Section 21(4)

By insertion of new sub section 21(4), a blanket discretionary powers for blocking of refund and inputtax adjustment and further action are proposed to be delegated to the Board, tax Commissioner or anyauthorized officer, where there is reason to believe that a registered person is engaged in issuing fakeor flying invoices, claiming fraudulent input tax or refunds, does not physically exist or conduct actualbusiness or is committing any other fraudulent activity. The Board, Commissioner or such officer mayafter recording reasons in writing, block the refunds or input tax adjustment of such person and directthe concerned Commissioner having jurisdiction for further investigation and appropriate legal action.

Records Section 22

It is proposed that registered person should maintain and retain gate passes, inward or outward andtransport receipt as sales tax record.

Audit Section 25

It is proposed to insert an explanation in respect of audit and inquiry that powers for conducting audits,

verification and inquiry given under section 25,38,38-A,38-B and 45-A are independent and not subordinate to the section 72-B.

The issue of audit by the field formation without any criteria was remain in dispute in recent past. Thesingle bench of Lahore High Court has categorically declared such powers against the spirit of the law.Later on the issue was taken up with Supreme Court and now it has been reverted back in intra Court

Appeal. It seems that in order to avoid such litigation proceedings the hierarchy of the Board hasproposed to induce specificexplanation under the law.


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Sales Tax

Posting of Inland Revenue Officer Section 40-B

It is proposed that available powers of the Board to post tax staff at business premises of taxpayers bedelegated to the Chief Commissioners.

The whole section was introduced with the assurance of the government to use such powerssparingly, however firstly these powers were conditionally delegated to Commissioners on thebasis of material evidence against any unit and now extensive powers within this section availableto the Board are proposed to be transferred to Chief Commissioners

In our opinion where the government has claimed in the past that in order to bring transparency withinthe system the audits were conducted on the parametric basis through computer balloting, extendingsuch discretionary powers to the Commissioners is not justified and would be challenged by the tradeandtax bars.

Monitoring or tracking by electronic or

other means Section 40( C )

A new section delegating some more extra ordinary powers are proposed to be inserted in Sales Taxlaw. According to this section the Board may by notification specify any registered persons, class ofregistered person or any good or class of goods in respect of which monitoring or tracking ofproduction, sales, clearance, stocks or any other related activity may be implemented throughelectronic or other means.

Furthermore, no taxable goods shall be removed or sold by the manufacturer or any other personwithout affixing tax stamp, banderole, stickers, labels etc, in ay such form, style manner and date asprescribed by the Board.

Induction of such sort of powers clearly given an idea that sales tax regieme is no more a selfassessment schemeand more likely to be converted into an old styled supervision mode.

At the one end the government claimed promoting value added mode culture based on selfassessment regime with reduced discretionary powers through reliance of electronic and I.T. meansand on the contrary such tried and tested means prevailed in past decade are going to ber e i n t r o d u c e d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Appeals Section 45-B

It is proposed that powers for granting stay by Commissioner Appeal in cases of undue hardship berestricted to 30 days only.

It is surprising to note that where there is undue hardship why the time limit for suspension of demand isrestricted till 30 days only. Induction of such amendment clearly reflects the impartial mind set of policymaker whoeven does not intend to allow relaxation in genuinecase of hardship.


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Rectification of hardship Section 57

It is proposed to substitute section 57. Existing section provides rectification of mistake in orders at thepart of taxofficer only however it does not cover theprovisions of review of the assessment order.

The detailed new provision now provides way and means to correct and amend any mistake and orderby Commissioner, CommissionerAppeal or Tribunal in itsown motionor on receipt of an application.

However no adverse finding against taxpayer in amending order can be given either to increase to taxliability or to decrease refunds. The time limit for rectification provision is restricted upto five years.

Reward to Inland Revenue Officer and Section 72-C

Reward to Inland Revenue Officer and other officials are proposed for their meritorious conduct and to

the informer providing credible information to the Board leading to such detection after realization ofpart or whole of the taxes involved.

Certain transactions not admissible Section 73

It is proposed that only such bank accounts of the registered person to be treated as business accountswhich are duly incorporated in registration profile of the taxpayer through proper insertion of change inregistration particulars application by STR-I Form.

This apparently minor amendment would require taxpayers to incorporate all their business bankaccounts within their sales tax registration profile to claim input tax and compliance as per law withintheambit of section 73.

Sales Tax on retail price 3 Shcedulerd

The scope of sales tax on number of following items are extended to the extent of retail price, theitems include:-

1 Finished or made-up articles of textile and leather, including garments, footwear, and bed ware, sold in

retail packing.2 Household electrical goods, including air conditioners, refrigerators, deep freezers, televisions,

recorders and players, electric bulbs, tube-lights, fans, electric irons, washing machines and telephone

sets.

3 Household gas appliances, including cooking range,ovens,geysers and gas heaters.

4 Foamor spring mattresses, and other foamproductsforhousehold use.

5 Autoparts and accessories soldin retailpacking.

6 Lubricating oils, brake fluid, transmission fluid, and other vehicular fluids and maintenance products in

retail packing.

Sales Tax


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7 Tyresandtubes.8 Storage batteries.9 Arms and ammunition.10 Paints, distempers, enamels, pigments, colours, varnishes, gums, resins, dyes, glazes,

thinners, blacks, cellulose lacquers and polishes sold in retail packing.11 Fertilizers.12 Cementsold in retail packing.13 Tilessold inretail packing.14 Biscuits, confectionary, chocolates, toffeesandcandies.15 Other goodsand productssold inretail packing.

By virtue of the proposed amendment, all these items are not only required to be charged sales tax onretail price and the price is required to be printed or embossed on each article, packet, container, coveror label as the case may be.

It is important to note that last item in the serials provides a blanket / open narration which covers all

goods andproductssold in retail packing.

Theamendment is proposedto be given effect from 13 June 2013

It is interesting to note that since all these items are required now to be charged on retail price basis withprinting retail price, given immediate effect to this measure does not make sense at all. All the suppliesof these items now come to halt since it is not possible for manufacturer to print or embossed retail priceon their available stock in hand. The proposed amendment is again one of the poorly conceivedamendment and without taking note of its immediate implication on trade.

It seems that since government has failed to brought wholesale, distribution network and retailer within

sales tax net, the burden to collect additional amount of sales tax is passed on to the manufacturer,producer or importer of theseitems.

th

Exemption Sixth Schedule

It is proposedthat exemption be withdrawn from international tender and milk preparations obtained byreplacing one or more of the constitutes of milk by another substance, whether or not packed for retailsale.

Sales Tax

Withdrawal of different notifications SRO 500

The FBR has withdrawn some notifications mainly pertain to 50% exemption to KPK, FATA, PATA andother war effected regions.

Exemption of Sales Tax on certain material used in the film industry as provided by SRO No.172(I)/2006 dated February 24, 2006 has been withdrawn.

Sales Tax Notifications


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Notification No 863(I)/2007 for application of zero rating on purchase of raw material of stationary anddairy product is also withdrawn. It is observed that since finished products of stationary are alsoexempted local manufacturing industry of stationary product would affect from this withdrawal and mayface problem to compete with importers of same items

Zero Rating Facility Replaced With

ExemptionSRO 501

FBR has issued notification 501(I)/2013 through which zero rating facility is replaced with exemption inorder to curb accrual of sales tax refunds on these items. List of items on which exemption is extendedare:-

1 Uncookedpoultry meat(PCT Heading 02.07).2 Milkandcream(PCT headings04.01and04.02).3 FlavoredMilk (PCTHeadings0402.9900 and22.02).4 Yogurt (PCTHeading 0403.1000).5 Whey (PCT Heading 04.04).6 Butter (PCTHeading 0405.1000).7 Desi ghee(PCT Heading 0405.9000).8 Cheese(PCT Heading 0406.1010).9 Processed cheese not grated or powdered (PCTHeading 0406.3000).10 Cotton seed (PCTheading 1207.2000).

11 Frozen, prepared or preserved sausages and similar products of poultry meat or meat offal(PCTHeading 1601.0000).12 Meat and similar products of prepared frozen or preserved meat or meat offal of all types

including poultry meat and fish (PCT Headings 1602.3200, 1602.3900, 1602.5000, 1604.11

Budget File 2013-14 Final

Documents

Transcript of Budget File 2013-14 Final